ETF Talk: Dishing up Dividends with This ETF

Marcus Tullius Cicero, a Roman statesman, lawyer, scholar and all-around Renaissance man, is quoted as saying, “Gratitude is not only the greatest of virtues, but the parent of all the others.”

Not only do I tend to agree with this quote, but it certainly feels fitting given our proximity to Thanksgiving. As we do during this season of thanks, I find myself reflecting on the many things that I am grateful for — one of which is being able to share my knowledge and advice with you, for whom I am supremely grateful.

Now, without going into a diatribe of all the things I am grateful for (as there are many), I’d like to bring one more to the proverbial table, and that is the dependability of dividend-centric ETFs. Naturally, I will be focusing on one of those exchange-traded funds today — the iShares Core Dividend Growth ETF (NYSEArca: DGRO).

In keeping with the Thanksgiving theme, think of DGRO as the perfectly roasted turkey: not the flashiest thing on the table, but the dependable centerpiece everyone quietly counts on. DGRO tracks the Morningstar US Dividend Growth Index and focuses on companies that have a track record of raising their dividends over time. Moreover, the fund seeks out firms with consistent dividend increases and filters out those with payout ratios that seem unsustainable.

While this may not sound as festive as the neighbor’s teriyaki-basted turkey, i.e., the funds that chase high-yield stocks, it helps keep investors shielded from dividend traps, or companies whose stock prices have fallen for troublesome reasons.

DGRO is widely diversified, with roughly 400 holdings in sectors tilted toward financials, information technology and health care, plus meaningful servings of industrials and consumer staples. Simply put, this ETF is loaded down with big names that tend to generate steady cash and share it generously.

If your mouth is not yet watering, consider the fund has tasty net assets of $34.4 billion in tandem with its strong liquidity and an ultra-low expense ratio of just 0.08%. DGRO pays dividends quarterly and has recently offered a yield in the low-2% range. Sure, this yield may not pay for your long-weekend vacation, but the income is meant to grow over time, and that compounding effect can be surprisingly filling.

Courtesy of Stockcharts.com

The chart here is the epitome of dependability – it shows solid, dependable growth – and while DGRO hit a dip in April, as many funds did, it was able to quickly right itself, which further displays the strength in its holdings. Currently, the fund is trading right at $69, which is incredibly close to its 52-week high of $69.30, and for that, I am grateful.

Speaking of the dependability of the fund’s holdings, its top 10 include JPMorgan Chase & Co. (NYSE:JPM), 3.12%; Apple Inc. (NASDAQ:AAPL), 3.10%; Microsoft Corporation (NASDAQ:MSFT), 3.05%; Johnson & Johnson (NYSE:JNJ), 3.00%; Exxon Mobil Corporation (NYSE:XOM), 2.98%; AbbVie Inc. (NYSE:ABBV), 2.95%; Broadcom Inc. (NASDAQ:AVGO), 2.40%; The Proctor & Gamble Company (NYSE:PG), 2.21%; The Home Depot, Inc. (NYSE:HD), 2.03% and UnitedHealth Group Incorporated (NYSE:UNH), 1.99%.

Ultimately, DGRO may be appealing to long-term investors who want a core equity holding with a rising stream of income. It often gets compared to other dividend ETFs like VIG or SCHD, but DGRO’s niche is dividend growth first, yield second. It aims to combine two enduring return engines — market appreciation and increasing payouts — without leaning so hard into yield that you end up overeating risk.

In investing, as in Thanksgiving, boring done well is often what everyone ends up most grateful for. But, as with all things, investors should always do their due diligence before adding any stock, fund or ETF to their portfolio. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.